The maximum recovery per employee for the 2020-2021 time period is $26,000. Stock Photo
The COVID-19 pandemic impacted businesses in different ways. For some, the government-mandated closure of businesses or the forced social distancing caused an otherwise steady stream of clients to come to a grinding halt. This was not the experience at Avanti Law Group.
“The clients never stopped,” said criminal defense attorney and Avanti Law Group partner Raquel Salas Guzman. “It was how quickly the clients could pay that became the issue.”
The pandemic, she said, allowed the firm to take a look at how they were spending money and ended up downsizing its staff from 23 to 18 employees.
“If they had implemented this early on, more people would have stayed on the job and more companies would have survived the pandemic successfully,” said John Galles, former head of the Small Business Association of Michigan. Galles now owns accountancy firm ERC Today, which specializes in helping small businesses file for Employee Retention Credits (ERC). “Your small business may be missing out on some big opportunities for ERC monies, which are not a loan. Business owners can use these funds for whatever they want. They can invest it, use it to pay their employees more, buy a new truck, go on vacation, whatever they choose.”
ERCs under the CARES Act were originally designed to help business owners keep employees on payroll during the pandemic. The CARES Act has been amended three times — changes that have left many confused as to whether they qualified for credits in any given quarter.
“What happened is at the end of 2020, during one of the amendments they made it so that the (Paycheck Protection Program) and ERC were not mutually exclusive,” said Rob Oostendorp of Neinhuis Financial Group in Grandville. “The PPP funds were initially easier to get than the ERC, so Congress got together and decided since they had pandemic money left over, they had to figure out how to get the money back into the hands of small businesses, so they amended and extended the CARES Act.”
Another amendment to the CARES Act states that businesses that began after Feb.15, 2020, that have revenues less than $1 million in one year are eligible for refunds of up to $50,000 of payroll taxes for the third and fourth quarters of 2021.
There have been material changes, as well. For example, the cannabis industry, which was not permitted to collect funds under the PPP, is eligible for ERC. Because of so many changes, a large number of employers that qualified for the ERC missed claiming the credit on their tax returns in 2020 and 2021.
Eligible employers that qualify for the ERC are entitled to a refundable credit of up to $5,000 per employee for any qualified wages paid between March 15, 2020, and Dec. 31, 2020, a refundable credit of up to $7,000 per employee per quarter (for the three quarters of 2021 for a maximum of $21,000 per employee) for wages paid between Jan. 1, 2021, and Sept. 30, 2021.
The maximum recovery per employee for the 2020-2021 time period is $26,000 per employee.
“I’m excited,” said Guzman, who noted that while her law firm is not expecting to receive the maximum amount for 18 employees, the amount she expects to receive is substantial and will help with the economic impacts of the pandemic. Not everyone who applies is eligible, but Guzman said she thinks it is worth the effort for other small business owners to look into it. A qualified tax professional can identify whether a business meets the ERC eligibility requirements. Guzman cautioned to be aware there are accounting fees involved and added that she entrusted her firm’s ERCs to her accountant of more than 10 years.
Oostendorp said his firm has assigned a couple employees to call clients to assess which ones qualify for the ERC because there are a lot of nuances involved as to who can receive the credits. Once the accountant has the pertinent information, he or she can make a determination fairly quickly.
“Andrew Johnson, an associate at Neinhuis, is the one who has been helping me do these ERCs. Generally, our turnaround is between two weeks and a month from the time we start the process, get the documents and do the calculations,” Oostendorp said, adding the time it takes to receive the funds from the IRS once a client signs the form and mails it is about six months. “We’re still cranking out ERCs every day, and the way we figure it we’ve got another 12 months of this. We all pay a considerable amount of payroll taxes through the system. The goal is to get these small business owners some capital back.”